Social Security Payments Exceed Income: "Trust Fund" Will Be Wiped Out by 2034

Mish

The notion there is a trust fund is ludicrous but let's look at this story through the eyes of a WSJ report.

The Wall Street Journal reports Social Security Expected to Dip Into Its Reserves This Year.

The Social Security program’s costs will exceed its income this year for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund to cover benefits.

This is three years sooner than expected a year ago, partly due to lower economic growth projections, according to the latest annual report the trustees of Social Security and Medicare released Tuesday. The program’s income comes from tax revenue and interest from its trust fund.

The trust fund will be depleted in 2034 and Social Security will no longer be able to pay its full scheduled benefits unless Congress takes action to shore up the program’s finances. Without any changes, recipients then would receive only about three-quarters of their scheduled benefits from incoming tax revenues.

The report also said that Medicare’s hospital insurance fund would be depleted in 2026, three years earlier than anticipated in last year’s report. Absent changes, the program then would be able to handle 91% of costs.

The nation’s aging population is boosting the costs of Social Security and Medicare, while revenue gains lag due to slower growth in the economy and the labor force.

About 61.5 million people receive retirement or disability benefits from Social Security and 58.4 million receive Medicare.

Dear WSJ

You sounds as pathetic as Al Gore in 2000 with his Lock Box theory.

In order to have a trust fund, there has to be something in it. There is no money. It's all been spent.

The notion of a "Trust Fund" is as ludicrous as me writing a check to myself for $1 trillion dollars then declaring I am the world's first trillionaire.

What is true and relevant is that payments exceed income. To the extent that payments exceed revenue, US deficits and overall debt rise.

Lock Box Debate

Full Lead-In

There is no fund. For reasons unknown, there is still a bit of trust. There shouldn't be.

Mike "Mish" Shedlock

Comments (56)
No. 1-50
Top-GUN
Top-GUN

Plain and simple... Every time SS expenditures exceed revenue, and that has been going on since 2010, the money necessary to make up the difference comes from the general fund which gets it from borrowing (T bills and bonds)..... and this will go on until folk realize the emperor has no clothes... actually most folk realize the emperor has no clothes, and that this is a ponzi scheme, but they will keep this Ponzi scheme (charade) going on for as long as possible...

JonSellers
JonSellers

FDR purposefully set up SS in a way that would make it difficult for the rich and powerful to cut. Because he knew they would always want to. So he put a limit on earnings subject to paying in so that the rich couldn't say they were subsidizing the incomes of the aged. And he made the working classes pay in to a special fund so they would feel the money was their's. Politically, it has been spectacularly successful. But Mish is right, there is no lockbox. Though I'd change Mish's analogy to taking a lot of checks from various grandmas, using the money to buy a few tanks, then telling grandma her check is safe in the bank. Regardless, the government will just borrow the money to pay SS and Medicare, forever if necessary. So it won't be a problem. Cutting taxes on large corporations is probably the solution.

cecilhenry
cecilhenry

The socialist voter defined:

when you would resent being robbed by your neighbor but more than happy to get the government to do it for you without a twinge of conscience.

Roger_Ramjet
Roger_Ramjet

"Dipping into Reserves" simply means issuing more treasury debt. This is yet another case of a financial reporter who either 1) is incredibly misinformed about the subject he/she is writing, or 2) has no ethical problem with perpetuating a false narrative in order to misinform the public.

Irondoor
Irondoor

My mother passed away at age 103. To her, Social Security and Medicare were the linchpins of financial security, but she still saved much of her income every year. When she was in her 90's, I asked her what she was saving for and why didn't she spend the money on herself? She said she was "saving for the future" (she meant the grandkids). If you dared to tell here there was no Trust Fund, you would get an earful. Coming through the Great Depression, FDR was like a god to her and her cohort.

One thing Mother never mentioned or thought of, I am sure, is the fact that her annual Social Security checks in her last year totalled about as much as she paid in during her lifetime. For her, SS and Medicare turned out to be the greatest Ponzi schemes in the world.

shamrock
shamrock

I own a $1,000 treasury bond, are you telling me I don't have any money because it's already been spent? Or maybe, that's what a loan is, the money is initially spent and then paid back with future income.

ReadyKilowatt
ReadyKilowatt

Except there's not enough income coming in to cover spending now, when there's a net surplus in the SS plan. Where's the money to cover paying back the bonds issued to the plan going to come from? Inevitably it will come from raising income tax rates on the workforce, or the printing press. Either way is going to hurt someone. If it is via printing press retirees will get paid the full amount but it won't buy much. If income taxes increase young people won't be able to afford much of anything because they'll be over-taxed.

offintherough
offintherough

It will be the printing press as we all know. Completely agree with Mish, there is no "vault" somewhere with billion in it signifying the SS stash. If SS overspends income, then the difference will be made up as part of the bonds we issue to cover the $600B deficit every year. This does add to the difficulty of rolling over bonds at historically low prices on top of trying to do QT. 10 yr bond probably hits 4% before the government has to change course and start to do QE again

Tony_CA
Tony_CA

SSN fund is underfunded, but we still manage to increase the military budget by 85 billion.

channelstuffing
channelstuffing

There is a trust fund Mish (ctrl P)!!!When you can print endless fiat ,the "check" will always be in the mail 1st of the month!

ChuckBlack
ChuckBlack

Here is what the SSA itself says about the trust funds. I guess some people are saying it's a lie.

And then there's this deal about the spendthrifts in govenment borrowing $2.85 Trillion from the SS trust funds.

According to this December 2017 article, the SS trust funds are running a $2.67 trillion surplus. If SS was paid back the other $2.85, things might be looking much better for the future of SS. And maybe if we stopped subsidizing petroleum companies and grifters like Elon Musk ($5 billion in subsides), cut the size of the federal government, end the multi-trillion dollar wars, etc. ....just maybe with some actual fiscal responsibility, we could work all of this out. But, it's doubtful. We're surrounded by greedy bastards who want to get their hands of every penny they can and exploit anybody possible to do it. They would sell their own mothers into prostitution if it made them a dollar. They keep wanting an endless stream of immigrants (legal and illegal) so they can dilute the price of labor and increase their margin. (a defacto feudal system) It'll only run so long. When it runs its course, the pitchforks will come out and people will start building guillotines.

KidHorn
KidHorn

Half the federal budget goes to paying entitlements. The money taken out of our paychecks for SS, medicare, etc.. is no different than paying income tax and the cost of SS, medicare, etc... is paid in the same manner as every other government expenditure.

And the SS trust fund is no different than a bank account. The money shown on a bank statement isn't really there.

ChuckBlack
ChuckBlack

The $2.6 Trillion surplus.

"Social Security currently has a $2.6 trillion surplus which has been building up since the 1983 amendments and is intended to help absorb the retirement of the baby boomers. "

Hipponoceros
Hipponoceros

It's worse than that. The SS surplus has been covering up part of the yearly deficit for years. Expect deficits to rise as the SS deficit will add to the US deficit.

JonSellers
JonSellers

If people actually cared about deficits, they'd demand Congress increase taxes.

Escierto
Escierto

That's hilarious. Increase taxes? No, we're driving this car into the ditch!

CautiousObserver
CautiousObserver

I agree with Kidhorn. Social security is a giant tax and spend program. Another important point is the young can only provide services to the old if they have surplus time and energy to do so. Unless automation takes up the slack, the program will collapse if demographics shift too heavily toward an older population (no matter how big an IOU is on the government balance sheet). Meanwhile, the Federal Government wins political points by forcibly taking money from the young, raking off part for itself, and doling out the remainder to the old so the same money can be returned to those it was taken from in exchange for services. I sometimes wonder if mafia guys were the ones who conceived this racket.

QTPie
QTPie

Not exactly. The SS tax has a MUCH broader base than the income tax. Pretty much everyone pays SS tax. That’s good from the perspective of having skin in the game. However, when it comes to the income tax which pays for most other govt. expenses outisde of SS, more than three quarters of the revenue comes from just 15% of tax payers.

QTPie
QTPie

Not exactly. The SS tax has a MUCH broader base than the income tax. Pretty much everyone pays SS tax. That’s good from the perspective of having skin in the game. However, when it comes to the income tax which pays for most other govt. expenses outisde of SS, more than three quarters of the revenue comes from just 15% of tax payers.

Realist
Realist

The US Social Security System is very poorly designed compared to many other developed countries pension systems. Mish is correct. There is no actual fund. It is merely numbers on paper. Other countries have actual pension funds that are invested in real assets all over the world (they invest in stocks, bonds, infrastructure, real estate, farms, forests, mines, energy production etc). I have no idea why the US never invested their pension funds. The result is that the US has put themselves at a big disadvantage as boomers retire and begin drawing more money out than is paid in. The same goes for health care. The US pays twice as much for health care compared to most other developed countries who have single payer systems. When you combine these two poorly designed systems together, it puts the US at a competitive disadvantage, and means that future benefits are going to have to be reduced slowly over time.

shamrock
shamrock

"they invest in stocks, bonds", the entire US Social Security balance is invested in bonds.

FlyOver_Country
FlyOver_Country

Benefits get reduced or increase the employee and employer withholding tax by 1.8%. My guess, taxes will be increased.

Walter Sobchak
Walter Sobchak

Chuck, there is no other $2.85T, you're double-counting the same bucket. The "surplus" in the "trust fund" is government debt.

Realist
Realist

Yes Shamrock. It is all “invested” in US government bonds. Not in corporate bonds. Not in stocks. Not in private equity. Not in farmland, forests or mines. Not in toll roads and bridges. Not in real estate or infrastructure. Not in energy production or transmission or pipelines. It is all invested in the US government, which takes your SS payments, spends it all, and writes you a govt bond in exchange. I would not want to live in the US and be relying on Social Security in my old age.

Carlos_
Carlos_

So I don't know why anyone is surprise. The minute the republicans passed the income tax cuts to the wealthy the first thing they said was to look into "entitlements" to control the deficit. This has been a republican wet dream for decades with the complicity of the fake democrats (the clintons, obamas etc). If they want to "fix" it all they have to do y reduce payroll taxes and drop the income ceiling. Of course all you will hear like for even now is that the old people need to sacrifice for the good of the next generation. Let the old eat cake!

Blacklisted
Blacklisted

Good grief. The Marxist moto lives on - a sucker is born everyday. I guess with your logic we should reduce the tax on cigarettes, soda, and gasoline to get less usage. Why do you think people are fleeing IL, NJ, and CA?

If anyone actually cared about the deficit, they would demand a balance budget ammendment, short term-limits, equal enforcement of the rule of law - particularly anti-trust laws (the biggest reason we have run-away health care costs), and make CONgress approve wars. Fortunately, Socialism is collapsing under its own weight. Unfortunatly, govt never goes quietly into the night. They will become increasing totalitarian to save their perks and power until their surfs become desperate enough to fight back, which is why they will do anything to confiscate guns.

Blacklisted
Blacklisted

Good grief. The Marxist moto lives on - a sucker is born everyday. I guess with your logic we should reduce the tax on cigarettes, soda, and gasoline to get less usage. Why do you think people are fleeing IL, NJ, and CA?

If anyone actually cared about the deficit, they would demand a balance budget ammendment, short term-limits, equal enforcement of the rule of law - particularly anti-trust laws (the biggest reason we have run-away health care costs), and make CONgress approve wars. Fortunately, Socialism is collapsing under its own weight. Unfortunatly, govt never goes quietly into the night. They will become increasing totalitarian to save their perks and power until their surfs become desperate enough to fight back, which is why they will do anything to confiscate guns.

JonSellers
JonSellers

The government of the USA made a decision to invest the funds in federal debt for 2 reasons: 1. It was set up during the Great Depression and the government needed a reliable funding source, and 2. President Roosevelt knew that the public and private sectors in the country were just too corrupt to be trusted with the decision of where to invest the money. If we had followed the path of responsible first world countries, the entire thing would probably be sitting in Goldman-Sachs investors bank accounts as we speak.

Tengen
Tengen

I suppose this is a huge deal for American society, but personally this is "meh". As an X'er, I've long assumed either I would not receive SS benefits, or if I did, the program would be watered down to the point that payouts are negligible.

It's something to watch if you're a boomer, something to shrug at if you're anyone else.

Carl_R
Carl_R

It doesn't matter whether you take the trust fund view or the view that there is no trust fund; either way, you end in the same place. First the trust fund view: Of course there is a trust fund. It is 100% invested in US Bonds. To pay the obligations, they need only to sell bonds, or redeem them as they mature, and not buy more. Conveniently, they have been buying bonds for the last 30 years, which has helped to allow the rest of the government to run a deficit, with no ill effects. Unfortunately, as they sell bonds, even as the rest of the government is issuing new bonds, it will become harder to find buyers, since they will compete with each other. The combined amount of bonds with much be sold are the amount of the US Federal deficit (to be sold by the Treasury) and the SS defict (to be sold by the SS Administration). With all these bonds needing buyers, long term interest rates may rise significantly.

Now the non-trust fund view: Well, their should have been a trust fund, but what the SS Administration did was to loan it to the rest of government, which spent it. There is no magical pile of assets that can be used to pay the benefits as they come due. Instead, the government as a whole must either run a surplus, or issue twice as much debt as usual, enough to support both the Federal deficit, and the SS deficit. The result is that long term interest rates may rise significantly.

As you can see, these are the same thing, so the question of whether there is actually a "Trust Fund" is just a matter of semantics, not economics. Either way, the situation is ugly.

Carl_R
Carl_R

Jon Sellers, over the last eighty years many different tax systems have been tried, some with high end tax brackets over 90%. Amazingly, the net revenue actually collected has been remarkable stable, at about 18% of GDP. If you are sitting with revenue at 18% of GDP, and expenditures at 21% of GDP, which seems to be more likely to balance things? Reducing expenditures to 18% of GDP, or trying to raise taxes above anything yet collected?

FelixMish
FelixMish

Yep. The "fund" is an accounting and sales tool. SS has always been pay-as-you-go, young supporting the old folks.

Realist, remember the US has had a single payer system for decades. Oddly enough, it costs about the same, per capita, as other countries' single payer systems. Does it deliver what other countries' system deliver? "Single payer" is clearly not a magical solution.

Note: "costs the same" - If you believe both the oft-repeated assertion the US spends twice, etc. and the US Gov's assertion that the US's single payer system accounts for half of US health spending. I'm inclined to doubt the former and wonder about the latter. On the other hand, I know real doctor/hospital prices are different in the US as in other places.

Blacklisted
Blacklisted

Those that complain about the "wealth gap" would likely be the first to complain about privatizing Social Security, or even allowing SS to invest in stocks; even though the wealthy get wealthy from asset appreciation, not income. If govt allowed everyone to have their SS deductions invested, we would all be multi-millionaires. For example, if you only averaged a $50K per year income since 1980, and had your 12.4% invested in the DOW (6.2% from you and your employer), you would have over $5 million now (with dividend reimbursement, the DOW has averged 12.7% per year). If you retired 7 years from now at 65 in 2025, you would have almost $12 million. How many people would be complaining about the "wealth divide" if they were allowed to invest Iike the wealthy? Govt is the great divider.

Blurtman
Blurtman

Holy Cow! My paycheck is electronically deposited into my bank. Gadzooks, there is no lockbox, either, just accounting entries. Yikes!

Blacklisted
Blacklisted

While history and current reality tells us govt's will try to continuously raise taxes to pay for their largess, history and Margaret Thatcher also remind us govt eventually runs out of other people's money. States like IL, NJ, and CA are learning that people and businesses simply leave when taxes get to high. When people can't leave, civil unrest and separatism erupts, which often leads to civil war. By 2032 the break-up of the US will begin. Raising taxes is the tool of Collectivist, not conservatives.

74% of all Municipals want to raise Taxes – Hello DEFLATION! | Armstrong Economics
74% of all Municipals want to raise Taxes – Hello DEFLATION! | Armstrong Economics

Municipal governments are going broke everywhere. This entire structure of government would never have been designed even by a moron. In Germany. a survey of 300 municipalities shows that 74% are planning to raise taxes. Now 27% plan to increase their cemetery fees, 25% want to demand more money for attending daycare or day schools. 21% plan to increase the property tax assessment rate, and 13% intend to raise the dog tax. (see latest German survery) We are headed into this Sovereign Debt Crisis and Western Society as we know it cannot POSSIBLY exist. The problem with politicians is they just look at the people as a bottomless-pit of revenue to be taxed at will. They have no grand plan nor have they ever contemplated the long-term viability of such a system with no fiscal restraints whatsoever. They never see themselves as part of any problem - it is always the cheating people who do not hand them everything they demand. This is the source of the civil unrest we see coming everywhere. Governments do not respect the people nor do they really care about our future. This is now all about them and they only see raising taxes rather than downsizing or reform. In the United States, the resistance toward raising taxes to pay for repairs in infrastructure has the Obama Administration pitching the pension funds to join in and invest in an "infrastructure fund". They are soliciting pension funds because they will benefit from tolls etc and that will be more palatable than watching you toll dollars go to bankers. The idea is this will be salable to the public. California's pensions Capers is on board and have already announced they will liquidate $4 billion from hedge funds. They have not announced where they will shift that money, but it appears they are getting ready for another Obama star project up there with Obamacare. State and local government cannot print money. This is the DEFLATIONARY aspect that first impacts society. Courts begin to rule only in government's favor and you then see the collapse of investment and society as a whole when the rule of law vanishes. The higher they raise taxes, the lower the disposable income, the lower the economic growth, and the higher we will see unemployment. Government wastes money - they consume capital and are incapable of producing anything worthwhile to contribute the economic growth. This is why government MUST be restricted to defined percentages of GDP to prevent it from growing like corporations until they become so big, they are unable to function. Public unions are already advocating just taking money from other sectors to pay them. This is precisely the same trend that unfolded in Rome setting in motion the decline and fall. When Rome could not fund its pensions to the military, they began numerous revolutions and that justified sacking cities that opposed their wishes. As Rome could not pay the troop pensions, they tore the empire apart at the seams. This is what lowered the defenses allowing the Barbarians to finally invade. Rome fell from within for the same faulty structure of fiscal mismanagement. The inflation (debasement) in the currency was NOT the cause of the fall of Rome, it was the symptom that followed the corruption. So pay attention. It is the DEFLATION that comes FIRST. Inflation NEVER appears first with nothing driving it. It has always been the expansion of government that unfolds FIRST that later manifests in inflation only when you cross that point of no return in PUBLIC CONFIDENCE. As taxes were raised on property, people began to vacate the cities. The population of Rome collapsed as property values fell due to rising taxes. Sound familiar? Only with rising taxation did people just start to migrate away from Rome. The Roman Emperor Diocletian (284-305AD) introduced passports. Not to travel from one country to another, but to be able to travel at all AFTER you were verified that you owed no taxes. Today, the US has introduced a law that if you owe the government $50,000 in taxes, they can revoke your passport until you pay. Wonderful how history repeats.

CautiousObserver
CautiousObserver

Government taking an ownership position in productive assets via investment of excess tax revenue is probably not the solution. Governments are notoriously wasteful at spending and investment. Probably better to let productive investment grow in the hands of motivated private owners and then tax a portion of the production to the extent government services are absolutely required. If government ownership of productive assets solved the revenue problem, then Venezuela would not be economically imploding.

jiminy
jiminy

We've all been scammed by our beloved "greatest generation". While simultaneously patting themselves on their collective backs for winning a war where the soviets did the bulk of the fighting, our heroes voted themselves benefits and charged the bills to future generations.

greatfruit
greatfruit

jiminy you are uninformed. Our social security benefits were paid for by us and the government "borrowed" and now there is only IOU's left. I don't know how you can say you can say you've been scammed by anyone other than our government.

Realist
Realist

To cautious observer. Governments in most other countries do not manage their pension funds. They hand that responsibility over to professional managers, who operate at arms-length from the government, for the benefit of all stakeholders. That’s why they are successful and actually run surpluses in their pension funds, to the benefit of their citizens. They don’t tell the managers where to invest and keep politics out of it. In addition, since the government is a stakeholder in these plans, they are often entitled to take out their share of any surplus that exists, so these plans occasionally actually become a source of bonus funds for the government.

Kinuachdrach
Kinuachdrach

Realist -- is that real? Please list the "most other countries" which have genuine investments of government pension funds. Chile, maybe? Any others?

Kinuachdrach
Kinuachdrach

The one time I had an opportunity to ask a Congresscritter (one of the smarter, better ones, it must be admitted) about Social Security, he objected to my description of it as an illegal Ponzi scheme. SS was not quite a Ponzi scheme, he said, because economic growth was expected to compensate for the declining ratio of those paying in to those taking out.

Kinuachdrach
Kinuachdrach

Of course, Congresses then went on and imposed all sorts of regulatory burdens and enormous administrative overheads on US industry – which cut economic growth. To touch delicately on one of Mish’s hot buttons, decades of one-sided trade deal giveaways which reduced employment, hollowed out the US economy, and limited tax revenues did not help either.

The Political Class have known they have a problem with SS for a long time – but have done nothing, since they are looking after themselves, not the nation. If we can ever drain the Swamp and get better legislators, rolling back excessive regulation to promote economic growth & employment might be a more attractive alternative to cutting benefits or raising taxes.

Blacklisted
Blacklisted

This reminds me. I've never seen you address the assets and income generated from the massive amount of assets owned by all local and state govt's, which is found in their CAFR's. Combined, govt owns more stocks than any other entity, and their dividends and interest income does not show up in their budgets. These assets are hidden on their balance sheet (CAFR). The mere fact that most people are not familiar with CAFR's is reason enough to investigate. You missed or ignored my past request for your attention on this important fact. CAFR1 will get you started -

Carlos_
Carlos_

Any other. Hmm lets see: The Government Pension Fund – Norway; Aug 23, 2015 - China to allow pension fund to invest in stock market ; Japan's colossal pension investment fund;

I give up after 2 minutes of intense google search I found nothing!

Stuki
Stuki

@Realist (???) Out of all possible things government can involve itself in and screw up, picking random numbers is one of the few (the only?) thing even they can’t mess up with their involvement.

If some pension funds are better “managed” than others, they either have lower admin fees, more realistic (read lower) expected/required-to-meet-promises returns, or they just happen to (so far) have bought a luckier basket of lottery tickets than some others. Which, of course, have exactly zero value in helping predict future “performance.”

Or, they aren’t so dumb as to make promises complete beyond their control. So they phrase pension promises in terms of some “number of base pension units” or some such. Rather than an explicit promise of currency. That way, they can use that additional degree of freedom to formally keep the scheme solvent, by adjusting the size of the base unit to match tax receipts, as the future unfolds.

baldski
baldski

Remove the cap and the fund will take care of itself forever.